Steel Dynamics, Inc. (STLD) Earnings Call Transcript & Summary

Good day, and welcome to this Steel Dynamics conference call regarding its newly announced investment in a new state-of-the-art low-carbon aluminum flat rolled mill. [Operator Instructions] Please be advised this call is being recorded today, July 19, 2022, and your participation implies consent to our recording this call. If you do not agree to these terms, please disconnect. . At this time, I would like to turn the conference over to David Lipschitz, Director, Investor Relations. Please go ahead.

Thank you, holly. Steel Dynamics Aluminum Flat Rolled Mill Strategic Investment Conference Call. As a reminder, today's call is being recorded and will be available on our website for replay later today. There's also an investor presentation on our website for reference during today's call. Some of today's statements, which speak only as of this date, may be forward-looking and predictive, typically preceded by believe, expect, anticipate or words of similar meaning. They are intended to be protected by the Private Securities Litigation Reform Act of 1995 should actual results turn out differently. Such statements involve risks and uncertainties related to integrating or starting up new assets, the aluminum industry, the use of estimates and assumptions in connection with anticipated project returns and our steel, metals recycling and fabrication businesses as well as through general business and economic conditions. Examples of these are described in the related press release, investor presentation as well as in our annually filed SEC Form 10-K under the headings Forward-looking Statements and Risk Factors filed on the Internet at www.sec.gov, and if applicable, in any later SEC Form 10-Q. Please reference the investor presentation and press release issued this morning entitled Steel Dynamics announces investment and new state-of-the-art low-carbon aluminum flat rolled mill aligned with its core steelmaking and recycling platform for any financial information and reconciliation of any non-GAAP financial measures to most directly comparable gap measures. And now I'm pleased to turn the call over to Mark Millett, Steel Dynamics Chief Executive Officer.

Mark, your line is live in the conference.

Okay. I'm going to start over. Sorry. You may not have heard that. I'm accompanied today with Theresa Wagler, our CFO, along with David Rosenblum. David has been with OmniSource recycling platform for some 40, 46 years, heading up aluminum recycling activities. He's a global presence -- globally recognized in that space. Along with Glenn Pushis, Glenn is SVP with SDI has been with us even predates our SDI experience back in Nucor, but most recently headed up the Sinton construction and start-up, which was an absolutely incredible feat. And he will be heading up our aluminum initiative going forward. I also have a few folks in the room, too, listening in that we're very, very sort of inferential in our due diligence and come out with the investment premise and the project and put a lot of, a lot of work in. So again, incredibly exciting day for us, I do believe. We're announcing our plans to build a new aluminum facility. It broadens our ability to serve our existing and new customers by adding a high-quality, low-carbon flat rolled aluminum mills to our product portfolio. Aluminum sheet actually has been on our radar for many years and the significant and growing North American supply deficit in aluminum platform makes this an ideal time to penetrate the market. I believe it's low risk as a margin-enhancing opportunity that further diversifies our product portfolio and provides further mitigation of market cycles. I think it should be considered this as an adjacent business to our highly successful steel operations with considerable overlap in process and operational know-how, commercial approach and raw material supply. It leverages our core strengths that we -- that has driven our success and our growth over the last 25 years. We have a phenomenal design, procurement, construction team, as I said, most recently led by Glenn [indiscernible] in Sinton. Our teams have constructed 3 very, very large steel mill assets and probably 14, 15 coating lines. Just a plethora of experience fast tracking projects, turning very, very quality mills and being able to start them up in very short order. We have a vast technical and operational expertise in melting, casting, rolling, heat treating and coating. And that is only added by the Unity team. They are a very, very talented bunch of folks that have a vast experience, deep practical, pragmatic experience in the aluminum business. It's going to be driven by our performance culture, our performance-driven culture that drives our superior efficiency and low cost, and it eliminates the cost and inefficiencies of legacy cost expense and the inefficiencies of aging mills in the aluminum industry. I guess you could just sum it up by saying, it's just what we do. We build high-return capital assets, that melt-cast and roll and then operate them better than anyone else. It also capitalizes on our deep understanding of raw materials, and we have a wide recycling network within the Omni organization. It's complementary extension of our metals recycling platform and obviously, is facilitated with our recent acquisitions and growth in Mexico. And I think also, we've proven over the years to be able to develop and create value-add supply chain solutions for our customers. And this is just a further extension of that. The project scope itself, as you saw or read 650,000 metric tons per year as flat-rolled facility. It will be built in the Southeastern U.S. It will consist of on-site melt and slab caster capability of 450,000 metric tons, which will directly supply the raw mill, cold rolling mills. We'll have 2 cash lines, coating lines and downstream processing and packaging operations. And obviously, it's going to be state-of-the-art technology and the process. Additional slab supply will be provided by 2 satellite downstream slab casting centers, 1 located in North Central Mexico and 1 in the Southwestern U.S. We expect the flat rolled mill to start up in the first half of 2025, the Mexico Slab Center in 2024 and the Southwest lab center by the end of 2025. Total project cost expected to be $2.2 billion for all 3 facilities. The investment will be 100% funded with available cash and cash flow from operations. Our expectation is that it will add about $650 million to $700 million through cycle consolidated annual EBITDA. We're going to offer a diversified product mix, serving the sustainable beverage packaging, automotive and transportation and common alloy industrial markets. Beverage can be roughly 45%, automotive for around 35% and common alloy 20% of shipments. It's always been a key pillar of SDI to have a customer commitment, and we've always designed to create innovative value supply chain solutions. And I believe there's a clear need for additional supply options and has been communicated by our current customer base who either distribute or consume both steel and aluminum. And just given the response in the last hour since our press release, the excitement is incredible. And we already have one customer wanting to plan a flag on our campus, wherever that might be. And the exciting thing for us is that there is a current and growing supply deficit, driven by the beverage can and -- principally by the beverage can and automotive industries. Automotive seems to be constrained by a lack of secure supply for it's EV development. And instead of ignoring that issue, we're embracing the change. We feel these needs while creating a natural hedge to steel substitution. Beverage can industry itself has been undergoing significant expansion and requires feedstock, and it's amazing to me that, that industry today actually imports cans. You want to get 2 tons of cans in a container today, and obviously, that's sustainable. There's a massive need for can stock, and we will help supply that. Similar to our Sinton facility, we will be inviting customers to co-locate on our campus. That brings tremendous savings, freight savings, yield savings, allows sort of a closed-loop recycle of scrap to the facility, reduces the common footprint. And we believe that's going to be an exciting new thing for those customers. The project itself is going to benefit from our leading ESG profile. ESG is not a new thing for us. It's been in the fabric of our company since our inception. Our production will focus on high recycled content to minimize carbon footprint and anticipate over 80% recycled content for can stock and obviously, lower but meaningful for recycled content for automotive. We will be best-in-class as we successfully develop new segregation technologies for scrap and increase their content over the years. The recycled aluminum requirements will be supplied through SDI's recycling platform, OmniSource, which is the largest nonferrous metals recycler in North America today. State-of-the-art technologies within the mill itself will provide superior energy efficiency and lower environmental impact. The slab sales will further reduce transportation emissions while providing significant freight to cost advantage. The satellite centers are going to be located where there's abundant scrap supply today. And by creating or producing slab and transporting that slab to the mill, obviously, creates a huge freight advantage and as I said, reduces the emission -- the transportation emissions. And it's going to aid our customers' path to minimize their own carbon footprint. From a shareholder perspective, and I'm a large shareholder, so I take import on this. I believe it builds on our proven track record to deliver best-in-class shareholder value creation. It's a large-scale, low-risk growth initiative and an extremely effective use of growth capital. It avoids the growth through excessive transactional multiples that are prevailing in the market today. Obviously, there are many opportunities to grow, but valuations are incredibly high, and we've always had a very disciplined approach to our growth. And we feel that this project is in our best interest, huge growth at a low multiple. Project cash needs will be spread over 4 years. So there's not a massive one shot. Everyone now our strong balance sheet to maintain. And when you consider the doubling of our cash flow generation over the past 5 years plus the new addition of Sinton, we'll have sufficient liquidity to continue our balanced cash allocation strategy. We still invest heavily in our existing operations. We maintain our positive dividend profile and our share repurchase programs. So I think it's going to be great for us as a whole. Theresa, any thoughts? Any further comments?

Yes. Thank you. And good morning, everyone. Thanks for joining us. I know it's an incredibly busy time for you with earnings, and we appreciate it. The anticipated financial returns for the project are incredibly compelling, and we believe, as Mark said, that the execution risk actually is low. The estimated total investment of $2.2 billion includes the aluminum flat-rolled mill and the 2 satellite recycled aluminum slab centers. Given our strong through-cycle cash flow generation, the investment will readily be funded with available cash and cash flow from operations. The project provides us with additional value-added margin-enhancing product diversification and a growing demand deficit supply environment. As Mark said, we expect the project to generate between $650 million and $700 million of annual through-cycle EBITDA, which results in an IRR in the high teens and a payback period of 5 years. Not included in that EBITDA amount is additional earnings that we believe we can achieve our mills recycling platform in the range of $40 million as they grow their aluminum scrap business and processing capabilities. The $2.2 billion investment is laddered over 4 years with the majority around $1.6 billion to be funded in 2023 and 2024. The rolling mill is expected to begin operations in the first quarter of 2025, and we believe it will be additive to earnings in that first year. As we were with Sinton, we're in a position of strength beginning the investment with a strong balance sheet, low leverage and strong liquidity. The investment complements our low-cost position and robust through cycle cash generating business model. Our cash flow profile has fundamentally changed over the last 5 years. The acquisitions and subsequent transformations of Columbus, Heartland and United Steel Supply combined with the completion of our new state-of-the-art Texas steel mill and added finishing lines have added significant free cash flow generation capabilities and scale to our business. Given our differentiated operating and financial model, we also expect to generate significant countercyclical cash flow in the event of an economic downturn as significant working capital relief would offset lower earnings. We are committed to funding this strategic growth investment in a manner consistent with our investment-grade credit profile. We will continue to maintain strong shareholder distributions during Sinton's investment phase, which was around 2019 to 2021, we both improved our credit metrics and we increased our shareholder distributions. We increased our dividends 39% and repurchased $1.5 billion or 14% of our shares during that same 3-year period. We are unique. We have strategically placed ourselves in a position to have a substantial capital foundation that provides the opportunity for strategic growth, strong shareholder returns and investment-grade credit metrics. This really is an incredibly exciting opportunity for the company, for our teams, our customers and for our shareholders. Mark?

I guess just to wrap up, it's a project that, for me, it's incredibly exciting. It takes me back to almost the inception of SDI some 27 years ago. It's certainly totally aligned with our current business model that it's consistent with our overall strategic focus over the years. That provides cyclical mitigation through value-add product diversification, higher highs, higher lows in earnings profile, the higher-margin value-add earnings growth of scale. It's going to allow us to continue superior best-in-class financial metrics within the industry. And most importantly, it will continue to allow us to provide the highest shareholder value creation of any of our peers. We're incredibly excited by the opportunity to once again revolutionize an industry. We did it before with steel. And here, we're going to do it again with the aluminum. So with that, Polly -- Holly, sorry. I'd like to hand it over to you to coordinate the questions.

[Operator Instructions] Your first question for today is coming from Emily Chieng with Goldman Sachs.

My question is just around the $650 million to $700 million through cycle EBITDA or estimate. It looks like it be a little bit higher than what some of your peers are currently generating. So the question would be, what are the differences between what you are proposing versus what the existing downstream [all] processes offering, perhaps maybe talk about some of the synergies and cost savings and then the pricing constructs that are baked into that estimate there?

Certainly. Well, obviously, this is going to be a brand new state-of-the-art facility. There has been one built in the aluminum industry for over 40 years. And with that, comes an optimized plant layout, whereby you have tremendous efficiencies in logistics materially handling, reduces the labor input for sure. There'll be lower energy input. Obviously, it will be state-of-the-art heating systems and much, much, much lower sort of energy profile, which in turn leads to obviously a much lower carbon footprint for sure. There's a huge yield loss through the aluminum process sort of production. We will be utilizing technologies there to lower that yield loss. I think, first and foremost, to be honest, is our performance-driven culture. We have absolutely demonstrated year-over-year in every business that we've penetrated that our culture, having an employee base that is engaged, passionate, innovative, creative coming up with solutions, drives efficiency. It drives a low-cost position. That will drive significant difference between us and our competitors. Obviously, we won't have any sort of legacy costs or the inefficiencies driven by the more -- the older aged facilities that are out there. We believe we can through it through our OmniSource recycling platform and some creativity, increase the scrap content of all the grades. And the satellite slab casters themselves by taking scrap turning into slab and transporting that slab to the mill will reduce freight costs considerably and again, lower the carbon footprint. So it is a very, very differentiated model, and we believe it's going to easily drive a difference in sort of an EBITDA per [indiscernible] or per tonne and drive our performance.

Emily, I would just add that we believe we've actually been fairly conservative with the estimate that we provided simply because as we looked at the spreads within the aluminum industry, we actually looked historically rather than looking forward for those estimates. If you look at the forward forecast, there would be expanding margins, and we didn't want to do that. So we actually looked to historically. And we believe that, that's conservative. So we think there's upside to what provided as well.

Your next question is coming from Timna Tanners with Wolfe Research.

Follow-up question a little bit more on the aluminum side. When you talk about the market remaining in deficit even with your production, does that include both the Novelis and the ball plant that are being contemplated? And then when you talk about payback schedule, does that assume that your automotive tons are qualified in year 1? Or can you talk to us a little bit more about the cadence of kind of a ramp-up in profitability given usually a delay there and a ramp-up in optimization of the plant?

Thank you, Timna. Firstly, yes, it does consider the Novelis expansion, which is highly probable and then the other manner expansion. I think it's -- what excites me is the fact this is probably the first time we've ever entered a market that is undersubscribed. So to have all our sort of differentiated attributes to get into this business in a very effective low-cost position and also have a supply deficit that we can exploit is tremendously exciting for us.

From the perspective of the ramp-up for the payback period, as I mentioned, the mill -- the aluminum rolling mill should start in the first quarter of 2025. We do expect to be profitable in that year from an EBITDA perspective and a pretax earnings perspective. It's likely to be around 50% to 60% of the capability then getting to an optimal mix by 2027. So that ramp period is, we think, fairly conservative.

Okay. And if I could sneak in a follow-up. For the amount that you're spending for a greenfield, we look at the existing players and we wonder if an existing player given these valuations would not have been also comparably interesting. Can you comment on that a bit as well to -- I know you talked about alternatives for cash and how you're going to continue to deploy for existing steel operations, but just wondering when you looked at the investment opportunities within aluminum, why you thought Greenfield was the best solution?

Well, greenfield Timna, allows us to introduce our operating culture that, that incentive performance-driven culture of ours that, as I said earlier, clearly has demonstrated an ability to have greater efficiency and lower cost. And in any of these metals businesses, it's absolutely important to be the low-cost producer. Buying an established organization company, unfortunately, you saddled with aged facilities with legacy costs and a culture that we prefer -- we just prefer to have our own.

In addition to that, we're -- as Mark mentioned earlier, we're avoiding the high multiple environment. When you have companies transacting at mid-teen multiples on peak earnings or on very high earnings, it just doesn't make sense to us from a capital allocation perspective. This is much more efficient and effective.

Your next question for today is coming from Alex Hacking with Citi.

And congrats on the announcement. I just wanted to ask on the raw material side, you mentioned that it's going to require 900,000 tons of recycled slabs. Do you have an estimate of how much primary material would be in there? And then I guess, following up a little bit on Timna's question, there's another 600,000 ton facility that's going to be ramping up at a similar time. Are you concerned about increased competition for recycled aluminum in the U.S. market?

Well, obviously, having the OmniSource platform is incredibly constructive for us as it has been in steel on the ferrous side business. OmniSource today is the largest nonferrous recycler in the States. We handle around about 500 million pounds of aluminum scrap today. And so again, we have tremendous relationships with industrial generators. We have scrap management programs. And so we are well armed with already with a base supply and the ability to grow that. From a standpoint of tons of primary will probably be around 300,000 tons -- sorry, 225,000 tons of primary.

Okay. Thanks for the question. And best of luck. I'll really join the queue.

If I may, just a couple of other thoughts, though. And again, there -- and this is where this business aligns itself well to our current business. In the ferrous world, there are similar concerns about scrap supply. But as I've said constantly, it's amazing how creativity, innovation and capitalism drives change and transition. And there's a vast, vast, vast amount of secondary scrap out there where there are technologies being developed, and we will develop those technologies to segregate out the cast from the extruded -- from the roll. And we feel that onto itself is going to drive a very large, large quantity of sort of scrap quality, appropriate material for the mill. And then obviously, you have a growing sense of closed-loop manufacturing where you supply coil to the canner or the can producer or to the automotive producer. They in turn produce and thereafter generate scrap that gets returned to the mill. So we are very, very, very confident given our position that scrap supply for us is not going to be a problem.

Your next question for today is coming from Seth Rosenfeld with BNP.

I had a question on the implications for the buyback[Technical Difficulty] your capacity to execute buybacks [Technical Difficulty] I think in the past, you talked about [Technical Difficulty] well below [Technical Difficulty] going forward.

Thanks, Seth. It's a great question. I'm glad you asked it. So from a shareholder return perspective, we want to be very clear on the call. We do plan to continue to execute the strong shareholder returns that we've had. On a through-cycle basis, we actually target around 35% of our net income, but you'll notice that we had shareholder distributions closer to 60% to 65% over the last 3 to 5 years. We would expect to continue that pace. And there's a couple of reasons. To your point, our balance sheet has been somewhat underlevered. And as we look forward to the cash flow generation through both earnings and if there was a weaker period, it would come through a significant amount of working capital release. We reach a point where unless we do shareholder distributions of a significant amount, you could be in a net debt leverage -- a negative net debt leverage position, which isn't where we plan to be. So we have the capability over this period as we're building the new rolling mill to actually have same and similar strong shareholder returns, and that's our plan.

[Technical Difficulty]

I'm sorry, I didn't catch that.

Sorry, just to confirm the consideration of 60% or higher net income [indiscernible]

No, I wasn't being that specific. I said we'd continue to have strong payouts. We've had them in the range of 50, 60, 65, it will be at any point in time what feels reasonable. So I'm not committing to a specific number. But what I'm saying is that we're going to continue to have these strong shareholder distributions that we've had.

Your next question is coming from David Gagliano with BMO Capital Markets.

A lot of them have already been covered. I just wanted to drill down a bit more on the projection, the $650 million, $700 million. If we look at the published public numbers for some of the peers, typically packaging is kind of [$250] a ton EBITDA margin, and that sort of thing and auto is, call it, $500 and to be blended, it's maybe $400 a ton or something like that. And again, it's over $1,000 in terms of the projection. So I'm wondering if you could break down the cost savings, how much is it all cost? And in which buckets, if it's possible to break it down to help close some of that gap? That's my first question. And then the second part of the question is just the why-now question you mentioned in the previous remarks had a eye on [indiscernible] rolling for a long time. I get it. There's a lot of cash right now. There's a lot of opportunities out there to deploy that capital. But world is slowing and heading into perhaps a more challenging time. And as mentioned on this call, there is quite a few other cans rolling facilities -- or sorry, aluminum rolling facility is being built. So I'm wondering why such a major capital investment at this stage of the cycle?

Well, I'm not going to get into a dollar-by-dollar pound-per-pound analysis. But the key differentiators, and they are massive. I can assure you. If you just compare the number of employees at an equivalent plant compared to this, we're probably going to have half the number of employees. So labor is a massive impact. Legacy cost, massive impact. Energy, considerable impact. Yield, considerable impact. Scrap content in our sort of synergistic relationship with OmniSource, large impact. And in transportation, it's going to be a considerable impact as well. So I'd say those are the main buckets. We are confident that the savings, the cost profile that we have planned or projected in our performance are conservative.

And I would add on the expansion. Dave, as we look at it, there's a growing consumption of flat rolled aluminum. And over the next 5 years, it's going to grow considerably, and there's already a gap, okay. So as we look at it, even with the Novelis and the potential ball expansions, there's still going to be well over 2 million tons of supply deficit in North America for flat rolled aluminum. And coupled with the fact that it's kind of shown today because last year, imports of flat rolled aluminum was around 25% and that has high cost tariffs associated with it. So it shows that there's a real need in North America, and it's a growing need. It's not a shrinking need. So it makes sense for there to be more capacity in the U.S., and we feel like we can bring it very cost effectively. And again, it's already -- I don't know, 2/3 of our customers, half of our customers already are consumers and processors of aluminum, and we're the largest nonferrous recycler in North America. So we've got the customer base. We have the raw materials. This just makes a lot of sense.

I would echo that. Again, as I said earlier, it's incredibly exciting for us to get into a market that is underserved. It's really the first time we've ever done, and that deficit is current and growing going forward. There's a -- in my mind, a total sort of business alignment both from a business model perspective and from a truck build, operate commercial perspective. This allows us a high-margin value-added growth at scale, and it eliminates the need or the -- let me just say, you've heard me say before, we grow very intentionally in a very disciplined manner. And there are multiple opportunities out there for growth alternatives. But at valuations that are extreme and in all honestly, crazy. This allows us -- we'll be spending $2.2 billion through cycle EBITDA generation $657 million, that is an incredibly effective, efficient form use of our cash. I think if you were to just analyze our growth over the years, we have the lowest cost of growth than any of our peers. And this is just another example.

Your next question is coming from Carlos De Alba with Morgan Stanley.

Just in terms of the satellite recycling operations, I just wonder if you can elaborate a little bit more as to what maybe other than the supply of scrap led you to pursue this strategy? Presumably, it might be cheaper the closer your recycling facilities are. So you can elaborate a little bit more about the rationale for that decision as well as a little bit of the logistics and the cost to bring or transport the scrap into the rolling mill facility?

Sorry, Carlos, I only got part of that.

So it's just regarding the scrap that you decided to have with the 2 satellite recycling facilities as opposed to maybe have everything in a rolling mill. Presumably, that is part of the supply of scrap, but that might come also with higher costs. So I wonder if you could elaborate a little bit more on the rationale and the cost implications, the logistics implications of having the 2 satellite facilities together with the rolling mill.

Got it. Okay. Sorry about that. I got it second time. Well, I think it makes phenomenal strategic sense to have our 2 slab centers. As I said, we have roughly 450,000 tons of slab capability at the mill itself and the other sort of 500,000 tons or so in the Southwest and in Mexico. The Southwest is generation of UBC content, and we feel it would be good to capture that, have a captive local supply there. And if you can imagine aluminum incredibly light and the transportation cost of transporting scrap across the country versus very, very solid dense slab, there's a tremendous freight savings there. So we capture the scrap out at source, we effectively turn it into slab and then very, very effectively at a low cost to transport that to the mill itself. And then same thing in Mexico. Mexico has a strong UBC generation, along with industrial scrap. And we believe that's going to grow even further as Mexico expands. And as you're aware, we purchased Zimmer, a large recycler in Monterrey in Mexico about a year ago. And we are in the throes of completing the acquisition of Roka. So we're going to have a very, very strong recycle presence in Mexico also. And just to make sure that people comprehend, even though there are 900,000 tons of scrap, that doesn't mean slab -- sorry, that doesn't mean to say we're looking for 900,000 tons of scrap. Given the yield loss through the aluminum process, there's a lot of scrap circulating in a loop, so to speak.

Understood. That's very clear.

Your next question for today is coming from Phil Gibbs with KeyBanc Capital.

Given you'll be a new entrant in aluminum rolled products, how long do you think it will take to get qualified in automotive and packaging applications, respectively, across your targeted accounts?

Well, we would envision that, obviously, common alloy industrial would be the quickest. We believe beverage will be parallel to that. Automotive, it's interesting over the years people have experienced long sort of certification periods. Well, when there's an absolute need, those periods contract dramatically and conversations with our automotive -- existing automotive customers. But I do believe they will fast track our product through. So I would expect to have sort of unexposed structural aluminum products going into the automotive world, probably within our first year followed by the higher qualities in the second and third years.

On the auto side, you'll be targeting unexposed and exposed, Mark?

Again, that's a natural sort of evolution, Phil. But again, I got to emphasize, this is different than the electric-arc-furnace penetration of automotive because there, there we were introducing a different technology, since slab casting, CSP production. Here, we're putting in state-of-the-art proven technologies. So it's not a matter of, okay, we've got to prove the technology and develop it. It's already there. It's just a question of moving material through the system, keep passing it and getting it approved.

Mark, you've been a company that has been very flexible in terms of pricing with your customers on[spot and then] and rolling index contracts. Is this presumably going to be a little bit different in terms of the way that you commercially come to market, knowing that historically, auto and packaging have been multiyear contract markets? Or are you going to try to disrupt that dynamic as well?

Well, the -- great question, Phil, but it's a very, very different commercial proposition. Obviously, in the past, the mini-mill industry, EAF-based industry, ourselves included, given the volatility of ferrous scrap down the lack of indexing wouldn't allow you or it wouldn't be prudent to do long-term contract pricing. In the aluminum world, it tends to be priced off an index and so the -- in all honesty, the raw material volatility in this sector is a lot, lot less than -- or has a lot smaller impact than in the first world. So yes, we will approach it differently, and we will approach it from the standpoint of maximizing our margin for sure.

Your next question is coming from Curt Woodworth with Credit Suisse.

I just want to follow up on kind of the margin differential of $1,000 per ton EBITDA. Do you -- can you talk about what sort of commercial arrangements you have in place? Like how much of your volume would you have under firm contract today? And also, we've seen a lot of volatility in the scrap spread, which is material for margins. So can you just kind of discuss maybe what you're underwriting in terms of scrap spreads going forward?

From a contract perspective, Curt, we don't have any firm contracts for the aluminum flat roll in place today, but we have had numerous conversations with significant customers across the spectrum. Because as I mentioned earlier, 2/3 of our carbon flat rolled customers today are also consumers and processors of aluminum. So for them, this is an excitement -- exciting time because it offers them availability that doesn't exist today because of the import situation because there's not enough aluminum flat roll supply in the U.S. And it also allows them to have a relationship that they understand. We do commercial things that are unique, but part of that uniqueness is serving the customer really well and creating these supply chain solutions. This really is an extension of that. From the volatility on the scrap side of the equation, given the fact that we are the largest collector and processor of nonferrous materials today, we believe we have the opportunity and we've shown it historically to mute that volatility as much as possible. So we're going to be competitively advantaged to the rest of the aluminum industry who doesn't have the footprint that we have in all of North America that Mark mentioned earlier. And we do intend to start processing and having new technologies that will help with the aluminum side of the equation as well, which we think will bring efficiency and it will allow us to use some aluminum scrap that might not be used today within the aluminum flat rolled arena. So there's a lot of different things functioning where if there's anybody that can have the benefit of muting that volatility and taking advantage of it, it's us.

Okay. That's helpful. And then I was wondering if you had a slide showing the deficit in the market of 2.3 million tons in North America. Is it all free to break that out between can sheet, common alloy, auto, et cetera?

We actually have that. I don't have that at my fingertips today, but it's something that we can show you. The biggest gap is in can sheet followed by automotive, but there's expanding deficit gaps within common alloy and the other product sets as well. But the largest is definitely in the sustainable beverage can arena.

We do have a follow-up question coming from Seth Rosenfeld.

[Technical Difficulty] just one final one with regards to [Technical Difficulty] you view in North America [Technical Difficulty]

Yes, the question is, as it relates to growth in steel, was this -- did we do aluminum just because there's no opportunity to steel? And the question to that answer is no, but you can unpack that more.

Absolutely not. Obviously, we are strongly founded in our steel experience. We have ongoing growth activities, as you know. We got 4 coating lines, 2 galvanizing lines, 2 paint lines that are under construction, and we see continued opportunities in steel. This is not a change in strategy. This is just an alignment for the addition of an adjacent growth platform. It's not one or the other. It's -- they're going to go in parallel. We don't necessarily have any immediate plans that, okay, this is mill #1 and over the next 5 years, there's going to be 3 more aluminum mills. We see a very compelling persuasive investment premise to get into aluminum to give optionality to our customer base and grow into a higher-margin material at scale. We will evaluate aluminum just as we evaluate steel going forward, and we'll grow in lockstep with our customer needs in the aluminum space.

I would just add to what Mark said, this wasn't because there's nothing else to do. And it's more than just being an adjacency. I think we can't overemphasize. We have the raw material expertise in the raw material base. We have a large component of the customer. We don't have can customers today, but we expect to have them tomorrow. So this is really aligned with what we do.

That concludes our question-and-answer session. I'd like to turn the call back over to Mr. Millett for any closing remarks.

Well, thank you, everyone, that is staying with us on the call. Again, for us, incredibly exciting. It's an opportunity to replicate the growth and the sort of revolutionary change that we brought to steel industry, and it sets us up for many, many years to come. So thank you, those that support us, even greater thanks. Have a great day.